Crunch time for flex

Despite recent predictions of double-digit growth, you could argue that new flex programmes will be amongst the first things to be trimmed as the country heads into recession.

Conversely it could be argued that in a tougher labour market, offering something that can keep employees loyal, engaged and productive and which at the same time allows employers better manage their benefit spend actually makes flex an even more attractive option.

There is, as yet, no sign of the downturn directly affecting flex programmes, says David Matthews, flex practice manager at Bupa Group Risk. “It could well be that it is too early to say, because flex benefits often have a longer lead time, so we could know better in six to eight months. But at the moment we are not seeing any new schemes being cancelled as a result of the credit crunch,” he says.

“And it could even be that employers see them as a positive way of defending themselves against the downturn because they can be a way of ring-fencing benefits,” he adds.

Michelle Wimsey, leader of Marsh’s voluntary employee benefits practice, also agrees it is too early to tell whether flex will flourish or falter. “I don’t think we are going to see companies removing existing platforms, because that would have a huge impact on their employees,” she argues. “What I think we will see is that, where clients already have a flex platform, they will be reviewing very carefully what they are offering and whether the products they are offering are competitive,” she adds.

“If an employer has not already got a flex platform in place I suspect they might look to delay implementation, perhaps to 2010. For some companies it will be a case of putting it on the back burner,” she concedes.

For the past six years financial services giant Prudential’s 2,800 UK staff have been among the growing number of UK employees able to pick and choose lifestyle, health, financial and other benefits through a flex programme.

“It is part of how we attract and retain people and an integral part of the total reward that we offer as an employer,” explains Diana Clayton, the company’s director of reward, about the You Choose scheme.

Certainly for Clayton the arguments in favour of flex make it a no-brainer. The attraction for her is not just the recruitment and retention benefits it can bring, but the fact that with technology making flex ever more efficient to implement and maintain, it is not even a huge cost burden on the business.

“People are becoming more savvy about what they spend their money on, and recognise that we are often able to negotiate a more preferential rate on their behalf – something that is becoming particularly important in a downturn,” she points out.

Lifestyle and leisure benefits, such as extra annual leave, holiday and childcare vouchers and bicycles-to-work all remain popular, as are health protection, PHI and PMI, dental insurance, critical illness and accident insurance, she says.

Clayton predicts we may over time see more wealth and social responsibility-type benefits becoming popular, such as education and training, give-as-you-earn schemes and preferential rates for access to an IFA.

“It might be something as simple as offering access to a language course. What is important as an employer is to be looking at these flexible benefits, particularly as we come into a downturn. Whether in a recession or not, it is important to review platforms on an annual basis,” she emphasises.

When it comes to software, the flex market has changed out of all recognition over the past decade, argues Tobin Coles, head of flexible benefits at Jelf Group.

“Ten years ago you could only buy the software through a software company, but now it is all more managed, with the benefit consulting expertise all part of it. You cannot now provide just the software. You need to be advising on the benefit package too and how they fit together,” he stresses.

To a degree, the key point of differentiation is no longer the software but the employee interface. “It is a question of how do we make it more dynamic and make your staff go ‘wow’?” says Coles.

This means more quirky products can sometimes become a real selling point, such as mass shopping schemes or cash-back at Tesco. Mobile phones through flex are also becoming more popular, as are “green” benefits that go beyond bikes-to-work schemes and include features such as carbon offsetting, adds Matthews.

Expert view – Can the market keep growing?

Earlier this year Enrich commissioned research that predicted the flex market would grow by 16 per cent a year for the next three years. Over-optimism? Not so, say advisers. While there may be some retrenchment on investment decisions by employers, particularly those who have not yet even started down the Flex path, there is still cause for optimism, argues Dorian Harrington, manager of flex consulting and administration at Enrich Reward.

“The marketplace is not generally over-mature. There are still a lot of organisations that have not yet implemented flex and will have been thinking about it for some time. Despite the way the economy is looking at the moment that may not deter them from doing it, but it very much depends on what their reasons are,” he suggests.

“Over the past two years the market has been relatively buoyant because of the race to attract and retain good talent. But that is just one element of flex. As the market turns down there is less emphasis on retaining staff and more on what employers want to do to contain costs,” he adds.

In fact Enrich may even be being conservative in its forecasts. Matthews, for example, estimates that the market has seen growth of more than 25 per cent in the past three years, and is likely to grow by between 20 and 25 per cent over the next three.

Rather than any pulling in of horns by employers what we are in fact more likely to see is employers spending more on their flex and benefits programmes, agrees Lee French, defined contribution proposition director at Alexander Forbes.

“As the economy slows down they are going to be using their employee benefit plans more as a motivational tool. We are starting to see some employers investing more in their benefit plans because they see it as a cost-effective strategy,” he explains.

Case study – Technology firm Mouchel

The relationship between adviser and employer is absolutely critical when it comes to implementing, maintaining and reviewing flex platforms and programmes, argues Kate Moore, benefits adviser at engineering consultancy Mouchel.

The company, which employs around 11,000 people, used Enrich Reward, then Gissings, to set up a salary sacrifice-based flex programme in November 2004.

The scheme is currently open to around 5,500 of its staff, although the company is looking at the feasibility of extending it to all employees.

“If we have any queries with any of our schemes we can just go to them and get advice straight away,” says Moore. “For example, they helped us sort out the implications of October’s extension of maternity laws.”

The key benefit for Mouchel from having a flex programme is simply greater employee engagement. “It allows employees to see that Mouchel is doing something for them. We also use the platform to help employees understand their benefits. For example, total remuneration statements are put up on it as is their new salary each year, so they can at the same time go and make their selection for the next year,” she explains.

While as yet there has been little evidence of any change in the sorts of products employees want – with health, dental and travel-related benefits among the most popular – Moore believes there may over time be a shift in what employees look for.

“I suspect there might be more of an emphasis on insurance-based products and I’d certainly be interested in seeing what we could introduce around fuel and car costs or other household expenses,” she says.